Canary in the mine, Homebuilders

Homebuilders continue tumble as Credit Suisse downgrades several in space

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Homebuilder shares tumble; Stockwinners

Many believe that housing market is the engine of the economy. If that is the case, we should expect a slow down in the economy. Housing prices have always been one of the first indicators of a slowdown or a coming out of a recession for the economy. We should brace ourselves for lower home prices!

Shares of homebuilders continued their decline after an analyst at Credit Suisse downgraded several companies in the space, saying that she expects more tempered demand and rising affordability concerns to weigh on homebuilding sentiment and broader group valuation, offsetting any near-term earnings beats.

A different analyst at the firm downgraded home improvement retailers Home Depot (HD) and Lowe’s (LOW) this morning, due to his concern that their recent results and stock prices have disconnected from housing.

HOMEBUILDERS DOWNGRADED

Credit Suisse analyst Susan Maklari told investors in a research note this morning that although she believes housing and macro fundamentals remain “intact,” including high consumer confidence and sustained low unemployment, unit gains are likely to moderate.

She sees any near-term earnings beats to be offset by even more tempered demand and rising affordability concerns. She sees average order growth for 2019 of 8%, compared to 11% in 2018 and 12% in 2017, and sees “relative” outperformance from builders who are able to capture above-trend gains due to product mix, like D.R. Horton (DHI), and geographic positioning, like PulteGroup (PHM). Maklari downgraded Lennar (LEN) and Meritage Homes (MTH) to Neutral from Outperform and lowered her respective price targets for the shares to $45 from $55 and to $36 from $50.

The analyst sees more limited upside to Lennar looking ahead as its strategic initiatives, as well as geographic exposure, are reflected in its current valuation.

While Meritage has benefited from efforts to drive improvements in operations in its East region as well as the rollout of its entry level targeted homes, Maklari believes much of the initial gains have been captured and she expects limited upside to the current valuation as comparisons become more difficult.

The analyst also downgraded KB Home (KBH) to Underperform from Neutral and lowered her price target to $18 from $27, saying that over the last several months her channel checks and Realtor Survey have pointed to slowing demand in higher cost MSAs, including California, which accounted for about 50% of the company’s 2017 revenues.

HOME DEPOT, LOWE’S ALSO DOWNGRADED

Another analyst at Credit Suisse, Seth Sigman, this morning downgraded Home Depot and Lowe’s, both to Neutral from Outperform, citing his concern that their recent results and stock prices have disconnected from housing. In a research note of his own, Sigman said his key concern is that home prices will continue to moderate, at least temporarily, as higher rates weigh on affordability.

Overall, Sigman still sees EPS growing, but sees less upside over the next 12 months relative to current estimates.

The analyst continues to view Home Depot as best-in-class in retail, but struggles to find multiple upside from its current premium level as housing sentiment shifts and some uncertainty arises. While he continues to expect meaningful improvement in sales and operating profit at Lowe’s under new CEO Marvin Ellison, Sigman thinks consensus estimates are baking that in. The analyst cut his price target on Home Depot to $204 from $222 and on Lowe’s to $111 from $115.

PRICE ACTION

Shares of Lennar dropped 3%, while Meritage Homes dropped 6.6% and KB Home declined 4.4%. Other homebuilders were dragged lower, including D.R. Horton, PulteGroup and Toll Brothers (TOL), which are all down over 3%.

Additionally, Home Depot and Lowe’s both declined over 4%. Further, XHB, the homebuilding ETF, is down nearly 3% today and about 10% month-to-date.


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Musk’s tweet sends Tesla shares lower

Tesla slides after Elon Musk mocks SEC on Twitter

https://stockwinners.com/blog/
Musk’s tweet sends Tesla shares lower

Shares of Tesla (TSLA) dropped in Friday’s trading after Elon Musk, the company’s CEO, mocked the Securities and Exchange Commission in a tweet, calling the agency the “Shortseller Enrichment Commission.”

Last weekend Musk reached an agreement with the SEC to settle fraud charges, and that charge is currently pending approval from a federal judge.

MUSK MOCKS SEC

On Thursday, Musk tweeted, in apparent reference to the SEC, “Just want to [sic] that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!”

Musk’s tweet came just hours after Musk and the SEC were told by U.S. District Court Judge Alison Nathan, who must approve the deal, to explain why the settlement is “fair and reasonable” by October 11, Bloomberg reported.

Separately, Musk took aim at BlackRock (BLK) and other large fund managers for fueling short sellers.

Musk alleged in a tweet that BlackRock and other firms pocket “excessive profit from short lending while pretending to charge low rates for ‘passive’ index tracking.”

SEC SETTLEMENT

This past weekend, the SEC announced that Musk agreed to settle the securities fraud charge brought against him last week.

The settlement requires that Musk will step down as Tesla’s chairman and will be ineligible to be re-elected chairman for three years.

Additionally, Tesla will appoint two new independent directors to its board and both the CEO and company will each pay $20M penalties to settle allegations that Musk misled investors in August by tweeting that he was considering taking Tesla private and had secured funding for the effort.

According to the SEC’s complaint, Musk’s misleading tweets caused Tesla’s stock price to jump by over 6% on August 7, and led to “significant market disruption.”

Additionally, the SEC is requiring that Musk get approval from the company’s lawyer before tweeting anymore company news, which reports had said could clamp down on Musk’s “headline-grabbing, unpredictable approach to promoting Tesla’s brand.”

Recode’s Teddy Schleifer reported via Twitter after the “Shortseller Enrichment Commission” tweet that the SEC agreement on Musk’s tweets “does not take effect for 90 days from the settlement date, per source. So he still has ~80 days to tweet whatever he wants.”

The SEC declined to comment on Musk’s tweet, Schleifer said.

Additionally, Fox Business Network’s Charlie Gasparino also tweeted, saying that the “@SEC_Enforcement continues to investigate @Tesla over possible misstatements on production/profitability targets-sources focus is on stated targets for Model 3/co profitability.

SEC sources say case is tougher case than @elonmusk ‘funding secured’ tweet.”

PRICE ACTION

In Friday morning trading, shares of Tesla are down 4.2% to $270.17.


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Toyota enters self-driving car services

Toyota, SoftBank agree to form JV for self-driving car services

Toyota enters self-driving car services, Stockwinners
Toyota enters self-driving car services, Stockwinners

Shares of Toyota (TM) are in focus on Thursday after the company announced plans to team up with SoftBank (SFTBF) to develop self-driving car services.

The news follows an announcement from General Motors (GM) on Wednesday that Honda (HMC) will invest $2.75B and take a 5.7% stake in its Cruise self-driving vehicle unit, in which SoftBank is also an investor.

TOYOTA, SOFTBANK TO FORM JV

Toyota announced in a statement that it and SoftBank will form a joint venture called MONET, short for mobility network, to develop businesses that will use driverless-car technology to offer new services, such as mobile convenience stores and delivery vehicles in which food is prepared en route.

MONET will provide coordination between Toyota’s Mobility Services Platform, Toyota’s information infrastructure for connected vehicles, and SoftBank’s Internet of Things Platform, which was built to create new value from the collection and analysis of data acquired from smartphones and sensor devices, the companies said.

MONET will roll out an autonomous driving service using e-Palette, Toyota’s dedicated battery electric vehicle for mobility services, by the second half of the 2020s, Toyota and SoftBank added.

The venture will have initial capital of Y2B, and SoftBank will own just over half of the business, which will initially focus on Japan and eventually go global, according to a Reuters report.

Junichi Miyakawa, chief technology officer at SoftBank who will be CEO of the new company, commented that “SoftBank alone and automakers alone can’t do everything… We want to work to help people with limited access to transportation.”

WHAT’S NOTABLE

Earlier this year, Toyota set up a new company dedicated to the research and development of self-driving vehicles, with plans to invest $2.8 billion to develop a commercially viable autonomous car.

RECENT PARTNERSHIPS IN AUTONOMOUS VEHICLES

On Wednesday, Cruise and GM announced that they partnered with Honda to work towards large-scale deployment of autonomous vehicle technology.

Honda will work jointly with Cruise and General Motors to fund and develop a purpose-built autonomous vehicle for Cruise that can serve a wide variety of use cases and be manufactured at high volume for global deployment.

Honda will contribute approximately $2B over 12 years to these initiatives, which, together with a $750M equity investment in Cruise, brings its total commitment to the project to $2.75B.

SoftBank’s Vision Fund committed $2.3B to Cruise earlier this year.

Additionally, Renault (RNSDF)-Nissan (NSANY) and Daimler (DDAIF) are considering expanding their collaboration to battery and autonomous vehicle technology as well as mobility services, Reuters reported on Wednesday, citing comments made by the CEOs of both companies.

“The industry being in transformation in the area of connectivity, autonomous cars and connected services, there are plenty of areas of cooperation for our entities,” Renault Nissan CEO Carlos Ghosn said.


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Clovis Oncology is in focus

Clovis receives Breakthrough Therapy Designation for Rubraca

CLVS to submit NDA to FDA
Clovis is in focus

 

Clovis Oncology (CLVS) announced that the U.S. Food and Drug Administration has granted Breakthrough Therapy designation for Rubraca as a monotherapy treatment of adult patients with BRCA1/2-mutated mCRPC who have received at least one prior androgen receptor-directed therapy and taxane-based chemotherapy.

Breakthrough Therapy designation is granted by the FDA to investigational agents intended to treat a serious or life-threatening disease or condition and whose preliminary clinical evidence may demonstrate substantial improvement on at least one clinically significant endpoint over available therapy.

The FDA previously granted Breakthrough Therapy designation to Rubraca for the monotherapy treatment of certain advanced ovarian cancer patients and then in December 2016 approved Rubraca for the treatment of certain adult patients with deleterious BRCA mutation associated epithelial ovarian, fallopian tube, or primary peritoneal cancer who have been treated with two or more chemotherapies.

The FDA subsequently approved Rubraca in a second indication, the maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy, in April 2018.

This most recent Breakthrough Therapy designation was granted to Rubraca based on initial efficacy and safety results from TRITON2, the Phase 2 study of Rubraca in men with advanced prostate cancer with BRCA 1/2 mutations and deleterious mutations of other homologous recombination repair genes, in the metastatic castration-resistant setting.

JP Morgan Comments

JPMorgan analyst Cory Kasimov is encouraged by Clovis Oncology’s announcement this morning that rucaparib received breakthrough designation from the FDA for the third line treatment of patients with BRCA mutated metastatic castrate-resistant prostate cancer on the basis of data from the Triton-2 study.

The analyst says the news further increases his confidence in the potential for rucaparib to produce response rates that are meaningfully better than currently available options.

His model implies $9 per share for prostate, assuming a 55% probability of success and $450M in peak unadjusted sales. #Kasimov keeps an Overweight rating on Clovis.

CLVS closed at $29.14, it last traded at $31.50.


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GE fires CEO, Shares rise

GE shares jump after CEO Flannery ousted amid Power unit challenges

GE introduces new company AiRXOS, Stockwinners
GE fires CEO, Shares rise

Shares of GE (GE) are rising in pre-market trading after the shrinking conglomerate announced that H. Lawrence Culp, Jr. has been named Chairman and CEO, replacing John Flannery, effective immediately.

POWER WRITE-OFF

The company stated that while its businesses other than Power are “generally performing consistently with previous guidance,” the company will fall short of previously indicated guidance for free cash flow and EPS for 2018 due to weaker performance in the GE Power business.

GE expects to take a non-cash goodwill impairment charge related to the GE Power business that will likely be as much as the approximately $23B current goodwill balance for the business, GE added.

GE previously forecast FY18 EPS at the low end of its $1.00-$1.07 range. The current EPS consensus is 95c.

RECENT ANALYST CONCERNS

In a recent note to investors, RBC Capital analyst Deane Dray lowered his price target on GE shares to $13 from $15, stating that the company had yet to reach a point where bad news does not make the stock decline and arguing that the bottom had not yet been reached.

Last month, JPMorgan analyst Stephen Tusa lowered his price target for General Electric to $10 from $11 and kept an Underweight rating on the shares.

The analyst’s channel checks, which were confirmed by GE Power’s CEO, GE investor relations, suggested GE had experienced a failure in a first stage blade on an H-frame in one of its two initial marquee installations in the U.S., Colorado Bend. Further, Tusa said the problem was material enough for Exelon (EXC) to have shut the plant down, along with the “award winning” Wolf Hollow plant for precautionary measures.

There should no longer be any doubt that GE Power has company-specific issues, Tusa contended at the time, stating that his new price target assumed weaker results at GE Power and some franchise value impact.

PRICE ACTION

In Monday’s pre-market trading, GE shares are up $1.53, or 13.5%, to $12.82.


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Barrick Gold acquires Randgold

Barrick acquires Randgold in all-stock deal, sees ‘industry-leading’ company

Barrick Gold acquires Randgold, Stockwinners
Barrick Gold acquires Randgold, Stockwinners

Barrick Gold (ABX) announced that it has reached agreement on the terms of a recommended share-for-share merger of Barrick and Randgold Resources Limited (GOLD).

The merger is subject to approval by both sets of shareholders, regulatory approvals and other customary closing conditions.

It is intended that the merger will be implemented by means of a court-sanctioned scheme of arrangement of Randgold Resources and the Randgold shareholders under Article 125 of the companies Law 1991, with the entire issued and to be issued share capital of Randgold being acquired by Barrick.

Under the terms of the merger, each Randgold shareholder will receive 6.1280 new Barrick shares for each Randgold share.

Following completion of the merger, Barrick shareholders will own approximately 66.6% and Randgold shareholders will own approximately 33.4% of the new Barrick Group on a fully-diluted basis.

The company said, “The Merger will create an industry-leading gold company with the greatest concentration of Tier One Gold Assets in the industry, led by a proven management team of owners. Superior operating metrics, including the highest Adjusted EBITDA margin and the lowest total cash cost position among Senior Gold Peers, will support sustainable investment in growth and shareholder returns.”

The merger is expected to close by Q1 2019.

Following completion of the merger: John Thornton, Executive Chairman of Barrick, will become Executive Chairman of the New Barrick Group; Mark Bristow, Chief Executive Officer of Randgold, will become President and Chief Executive Officer of the new Barrick Group; Graham Shuttleworth, Finance Director and Chief Financial Officer of Randgold, will become Senior Executive Vice President and Chief Financial Officer of the new Barrick Group; Kevin Thomson, Senior Executive Vice President, Strategic Matters of Barrick, will become Senior Executive Vice President, Strategic Matters of the new Barrick Group; Two-thirds of the directors of the board of the new Barrick Group will be nominated by Barrick, and one-third will be nominated by Randgold.


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Amarin sharply higher on data

Amarin soars after REDUCE-IT study meets primary endpoint

Amarin sharply higher on data, Stockwinners
Amarin sharply higher on data, Stockwinners

Amarin (AMRN) announced topline results from the Vascepa cardiovascular outcomes trial, REDUCE-IT, a global study of 8,179 statin-treated adults with elevated CV risk.

REDUCE-IT met its primary endpoint demonstrating an approximately 25% relative risk reduction, to a high degree of statistical significance, in major adverse CV events in the intent-to-treat patient population with use of Vascepa 4 grams/day as compared to placebo, Amarin said in a statement.

Patients enrolled in REDUCE-IT had LDL-C between 41-100 mg/dL controlled by statin therapy and various cardiovascular risk factors including persistent elevated triglycerides between 150-499 mg/dL and either established cardiovascular disease or diabetes mellitus and at least one other CV risk factor. Key topline results include approximately 25% relative risk reduction, demonstrated to a high degree of statistical significance, in the primary endpoint composite of the first occurrence of MACE, including cardiovascular death, nonfatal myocardial infarction, nonfatal stroke, coronary revascularization, or unstable angina requiring hospitalization.

This result was supported by robust demonstrations of efficacy across multiple secondary endpoints, the company said.

It added that Vascepa was well tolerated with a safety profile consistent with clinical experience associated with omega-3 fatty acids and current FDA-approved labeling.

The proportions of patients experiencing adverse events and serious adverse events in REDUCE-IT were similar between the active and placebo treatment groups.

Median follow-up time in REDUCE-IT was 4.9 years. Amarin said it is “eager to share REDUCE-IT data in greater detail with both the medical community and regulatory authorities.”

REDUCE-IT results have been accepted for presentation at the 2018 Scientific Sessions of the American Heart Association on November 10, 2018 in Chicago, Illinois.

“We are delighted with these topline study results,” said John Thero, president and CEO of Amarin.

“Given Vascepa is affordably priced, orally administered and has a favorable safety profile, REDUCE-IT results could lead to a new paradigm in treatment to further reduce the significant cardiovascular risk that remains in millions of patients with LDL-C controlled by statin therapy, as studied in REDUCE-IT.”

It notes, “As previously described, given the successful topline results of REDUCE-IT, Amarin is in the process of increasing the number of company sales representatives promoting Vascepa to over 400 people in the United States.”

Shares of Amarin (AMRN) closed at $2.99, it last traded at $12.30.


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General Mills North America sales decline

General Mills plunges after reporting North America sales decline

General Mills North America sales decline, Stockwinners
General Mills North America sales decline, Stockwinners

Shares of General Mills (GIS) sunk in late morning trading after the company reported quarterly results, including net sales for its North America Retail segment that fell 2% from the year-ago period.

QUARTERLY RESULTS AND GUIDANCE

General Mills reported first quarter adjusted earnings per share of 71c, beating analysts’ consensus estimates of 63c, while sales of $4.1B were essentially in line with the consensus forecast.

However, the company said net sales in North America, its biggest region, fell 2% to $2.39B, with net sales down 4% in U.S. Snacks and down 2% each in U.S. Meals & Baking and U.S. Yogurt.

General Mills said its pet-food division reported sales of $343.4M, up 14% on a pro forma basis. General Mills acquired Blue Buffalo earlier this year for $8B, and said its net interest expense was $134M in the quarter, primarily driven by financing related to the acquisition.

Looking ahead, General Mills reaffirmed fiscal 2019 targets, including adjusted EPS flat to down 3% from the base $3.11 earned in fiscal 2018, organic net sales flat to up 1%, net sales up 9%-10% including the impact of the Blue Buffalo deal and constant currency adjusted operating profit up 6%-9% from the base of $2.6B reported in FY18.

EXECUTIVE COMMENTARY

In a statement, Chairman and Chief Executive Officer Jeff Harmening commented that FY19 is “off to a good start” and said the Blue Buffalo transition is “progressing well.”

General Mills expects double-digit top and bottom-line growth for the Blue Buffalo business this year, excluding acquisition-related charges. On its quarterly earnings conference call, CFO Donal Mulligan said he expects price/mix to improve as the year unfolds, and that operating margins will be down “somewhat” for the year.

He also thinks there will be “a little bit more pressure” on gross margin from where the company originally expected.

For the year, General Mills expects input cost inflation will be 5% of cost of goods, one point above FY18 levels.

OTHERS TO WATCH

Peers trading lower on Tuesday include Kraft Heinz (KHC), Campbell Soup (CPB) and J.M. Smucker (SJM).


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Engility Holdings sold for $2.5 billion

SAIC to acquire Engility in all-stock deal valued at $2.5B

Engility Holdings sold for $2.5 billion, Stockwinners
Engility Holdings sold for $2.5 billion, Stockwinners

SAIC (SAIC) and Engility Holdings (EGL) announced that they have entered into a definitive agreement under which SAIC will acquire Engility in an all-stock transaction valued at $2.5B, $2.25B net of the present value of tax assets, creating the second largest independent technology integrator in government services with $6.5B of pro-forma last 12 months’ revenue.

The combination of these two complementary businesses will accelerate SAIC’s growth strategy into key markets, enhance its competitive position and provide significant financial benefits.

The transaction will create market sub-segment scale in strategic business areas of national interest, such as defense, federal civilian agencies, intelligence, and space.

In addition, it expands the capabilities of both companies, bringing additional systems engineering, mission, and IT capabilities to a broader base of customers.

Under the terms of the merger agreement, Engility stockholders will receive a fixed exchange ratio of 0.450 shares of SAIC common stock for each share of Engility stock in an all-stock transaction.

Based on an SAIC per share closing price of $89.86 on September 7, 2018, the transaction is valued at $40.44 per share of Engility common stock or $2.5B in the aggregate, including the repayment of $900M in Engility’s debt.

SAIC has obtained a financing commitment letter from Citigroup Global Markets Inc. for a new seven-year senior secured $1.05B term loan facility under our existing credit agreement.

The proceeds will be used to repay Engility’s existing debt and associated fees. SAIC expects no immediate change to its quarterly cash dividend as a result of this transaction.

The transaction is expected to close by the end of the fiscal fourth quarter ending February 1, 2019, following customary closing conditions, including regulatory and SAIC and Engility shareholder approvals.

The transaction has been unanimously approved by both boards.

The businesses will continue to operate separately until the transaction closes. The combined company will retain the SAIC name and continue to be headquartered in Reston, Virginia.

Following closing, Tony Moraco will continue as CEO and as an SAIC board member. SAIC will expand its board to include two additional members from Engility’s board.


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Ocean Rig sold for $2.7B

Transocean to acquire Ocean Rig for $2.7B including debt

 

Ocean Rig sold for $2.7B, Stockwinners
Ocean Rig sold for $2.7B, Stockwinners

Transocean (RIG) and Ocean Rig UDW Inc. (ORIG) announced that they have entered into a definitive merger agreement under which Transocean will acquire Ocean Rig in a cash and stock transaction valued at approximately $2.7B, inclusive of Ocean Rig’s net debt..

The transaction consideration is comprised of 1.6128 newly issued shares of Transocean plus $12.75 in cash for each share of Ocean Rig’s common stock, for a total implied value of $32.28 per Ocean Rig share, based on the closing price on August 31, 2018.

This represents a 20.4% premium to Ocean Rig’s ten-day volume weighted average share price.

The transaction has been unanimously approved by the board of directors of each company.

Transocean intends to fund the cash portion of the transaction consideration through a combination of cash on hand and fully committed financing provided by Citi.

The merger is not subject to any financing condition. Upon completion of the merger, Transocean’s and Ocean Rig’s shareholders will own approximately 79% and approximately 21%, respectively, of the combined company.

No changes to Transocean’s board of directors, executive management team, or corporate structure are anticipated as a result of the acquisition.

The Company will remain headquartered in Steinhausen, Switzerland, with significant operating presence in Houston, Texas, Aberdeen, Scotland and Stavanger, Norway.

The transaction, which is expected to be completed during the first quarter of 2019, is subject to the approval of both Transocean and Ocean Rig shareholders and the satisfaction of customary closing conditions, including applicable regulatory approvals.

The merger is not subject to any financing condition.

Also, consistent with the Company’s strategy of recycling less competitive rigs, Transocean will retire two of its floaters, the ultra-deepwater drillship C.R. Luigs and the midwater floater Songa Delta.

The rigs will be classified as held for sale and will be recycled in an environmentally responsible manner. Both floaters are currently stacked.

Transocean anticipates re-ranking the combined fleet, which may result in additional rigs being recycled.


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Coca-Cola to acquire Costa for $5.1B

Coca-Cola to acquire Costa in deal valued at $5.1B

Coca-Cola to acquire Costa for $5.1B, Stockwinners
Coca-Cola to acquire Costa for $5.1B, Stockwinners

Coca-Cola (KO) announced that it has reached a definitive agreement to acquire Costa Limited.

The acquisition of Costa from parent company Whitbread PLC is valued at $5.1B and will give Coca-Cola a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion.

Costa operations include a leading brand, nearly 4,000 retail outlets with highly trained baristas, a coffee vending operation, for-home coffee formats and Costa’s state-of-the-art roastery.

For Coca-Cola, the expected acquisition adds a scalable coffee platform with critical know-how and expertise in a fast-growing, on-trend category. Costa has a solid presence with Costa Express, which offers barista-quality coffee in a variety of on-the-go locations, including gas stations, movie theaters and travel hubs.

Costa, in various formats, has the potential for further expansion with customers across the Coca-Cola system. The acquisition will expand the existing Coca-Cola coffee lineup by adding another leading brand and platform. The portfolio already includes the market-leading Georgia brand in Japan, plus coffee products in many other countries.

The purchase price is approximately $5.1B.

Upon the closing, Coca-Cola will acquire all issued and outstanding shares of Costa Limited, a wholly owned subsidiary of Whitbread. This subsidiary contains all of the existing operating businesses of Costa.

Whitbread will be seeking shareholder approval for the transaction, which is expected to take place by mid-October.

The deal is subject to customary closing conditions, including antitrust approvals in the European Union and China.

It is expected to close in the first half of 2019. Coca-Cola expects the transaction to be slightly accretive in the first full year, not taking into account any impact from purchase accounting.

For FY18, Costa generated revenue and EBITDA of roughly $1.7B in revenue and $312M in EBITDA.

Because Coca-Cola expects the transaction to close in the first half of 2019, there is no change to 2018 guidance.

The company’s long-term targets also remain unchanged.


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K2M Group sold for $1.4B

Stryker to acquire K2M Group for $27.50 per share

K2M Group sold for $1.4B , Stockwinners
K2M Group sold for $1.4B , Stockwinners

Stryker (SYK) announced a definitive merger agreement to acquire all of the issued and outstanding shares of common stock of K2M Group (KTWO) for $27.50 per share, or a total equity value of approximately $1.4B.

The combined business will have a competitive portfolio across Stryker’s Spine product categories and leverage a more powerful commercial engine.

With the addition of K2M’s proven product portfolio, consistent track record of execution and robust pipeline, Stryker Spine’s business will be well-positioned to sustain innovation and provide its customers and employees with proven products.

Upon closing of the transaction, it is expected that Eric Major will serve as President of Stryker’s Spine division and lead the combined business in its continued growth and innovation.

Bradley Paddock, the current President of Stryker’s Spine division, will assist with transitioning his responsibilities to Major while also supporting the integration efforts.

The acquisition of K2M is expected to close late in the fourth quarter of this year and is expected to have an immaterial dilutive impact to Stryker’s net EPS and adjusted net EPS in 2018.

There is no change to Stryker’s previously announced expected adjusted net EPS for the full year, which is a range of $7.22-$7.27.

For 2019, and beyond, Stryker reaffirms its previously stated long-term financial goals for sales, operating margins and adjusted net EPS.


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Yum China receives takeover offer

Yum China rises after reportedly spurning $46 per share takeover bid

Yum China receives takeover offer, Stockwinners
Yum China receives takeover offer, Stockwinners

Shares of Yum China (YUMC) are on the rise following a media report saying the company has rejected a buyout offer of $46 per share made by a consortium led by Hillhouse Capital.

Earlier this month, Bloomberg had reported that China’s sovereign wealth fund, China Investment Corp., was part of the consortium bidding to take Yum China private.

BUYOUT OFFER REPORTEDLY REJECTED

Yum China has rejected a private buyout offer from a consortium of investors that valued the company at over $17B, according to The Wall Street Journal, citing a person familiar with the matter.

An investor group led by Hillhouse Capital Group in recent months offered to take the restaurant operator private at $46 per share, but the all-cash offer was turned down by the company’s board in recent weeks, source told the publication.

Last month, The Information had reported that Hillhouse Capital was in talks to acquire Yum China. The company operates over 8,000 KFC and Pizza Hut restaurants across mainland China.

A takeover led by Hillhouse would assist the company in accelerating its efforts to implement high-tech initiatives in its brick-and-mortar stores in order to attract Chinese millennials, the report pointed out.

CHINA INVESTMENT PART OF CONSORTIUM

Earlier this month, Bloomberg reported that China’s sovereign wealth fund, China Investment Corp., was part of the consortium bidding to take Yum China private.

The sovereign fund and DCP Capital, an investment fund run by former KKR (KKR) executives, are considering a buyout of Yum China, which runs KFC and Pizza Hut outlets, along with Hillhouse Capital, the publication added. Yum China spun off from Yum! Brands (YUM) in 2016.

PRICE ACTION

In tuesday’s trading, shares of Yum China trading in New York are off their earlier highs, but are trading up 3.8% to $37.14.


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Navigators Group sold for $2.1 billion

Hartford Financial to acquire Navigators for $2.1B in cash 

Navigators Group sold for $2.1 billion, Stockwinners
Navigators Group sold for $2.1 billion, Stockwinners

The Navigators Group (NAVG) announced that it has entered into a definitive agreement to be acquired by The Hartford Financial Services Group (HIG) in an all-cash transaction that values Navigators at approximately $2.1B.

Under the terms of the agreement, Navigators stockholders will receive $70.00 per share in cash upon the closing of the transaction.

The $70.00 per share offer price represents a multiple of 1.78 times Navigators’ fully diluted tangible book value per share as of June 30, 2018 and an 18.6% premium to the 90-trading-day average stock price.

The transaction, which was unanimously approved by Navigators’ Board of Directors, is subject to regulatory and stockholder approvals and other customary closing conditions, and is expected to close in the first half of 2019.

Navigators expects to continue paying regular quarterly dividends consistent with past practice prior to closing.

Completion of the transaction is not subject to any financing conditions. Navigators’ founder, and shares controlled by other members of his family, which represent approximately 20% of total shares outstanding, have agreed to vote in support of Navigators’ transaction with The Hartford.

The agreement includes a “go-shop” provision designed to afford an opportunity for other potential acquirers to determine whether they are interested in proposing to acquire Navigators.

Accordingly, for 30 days Navigators will have an opportunity to solicit competing acquisition proposals. If the Board of Directors accepts a competing proposal during the “go-shop” period that The Hartford does not match, the successful competing bidder would pay a termination fee to The Hartford.

NAVG closed at $64.25.


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Keystone Foods sold for $2.16B

Tyson Foods to acquire Keystone Foods for $2.16B 

Keystone Foods sold for $2.16B, Stockwinners
Keystone Foods sold for $2.16B, Stockwinners

Tyson Food (TSN) announced it has reached a definitive agreement to buy the Keystone Foods business from Marfrig Global Foods for $2.16B in cash.

The acquisition of Keystone, a major supplier to the growing global foodservice industry, is Tyson Foods’ latest investment in furtherance of its growth strategy and expansion of its protein capabilities.

Headquartered in West Chester, Pennsylvania, Keystone supplies chicken, beef, fish and pork to some of the quick-service restaurant chains, as well as retail and convenience store channels.

Its product portfolio includes chicken nuggets, wings and tenders; beef patties; and breaded fish fillets.

The acquisition includes six processing plants and an innovation center in the U.S. with locations in Alabama, Georgia, Kentucky, North Carolina, Pennsylvania and Wisconsin. It also includes eight plants and three innovation centers in China, South Korea, Malaysia, Thailand and Australia.

Keystone, which employs approximately 11,000 people, generated annual revenue of $2.5B and adjusted EBITDA of $211M in the last 12 months ending June 30, excluding non-controlling interest and other adjustments.

During the same period, the company generated approximately 65% of its revenue from U.S.-based production and the remaining 35% from its Asia Pacific plants.

The acquisition will be funded through a combination of existing liquidity and proceeds from the issuance of new debt. Initial leverage metrics are expected to be well within levels appropriate for the company’s existing investment-grade credit ratings.

The company plans to use its cash flows to pay down debt to continue to support its credit ratings and to strengthen its balance sheet.The transaction, which has been approved by Tyson Foods’ board of directors, is expected to close in mid-fiscal 2019. It is subject to customary closing conditions, including regulatory approvals.


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